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Kauffman Economic Outlook A QUARTERLY SURVEY OF LEADING ECONOMICS BLOGGERS

THIRD QUARTER

2011

www.kauffman.org

Kauffman Economic Outlook


A QUARTERLY SURVEY OF LEADING ECONOMICS BLOGGERS
in partnership with Palgraves Econolog.net

Third Quarter, 2011

TIM KANE Senior Scholar Ewing Marion Kauffman Foundation

July 2011

www.kauffman.org

Kauffman Economic Outlook2011 Q3

INTRODUCTION
This paper reports the results of a survey of top economics bloggers. The survey was conducted in mid-July 2011 by soliciting input from top economics bloggers as ranked by Palgraves Econolog.net. While many (around 50 percent) of the respondents have participated in all quarterly surveys, the results across quarters are not directly comparable. Core questions that recur each quarter and topical questions submitted by participating bloggers were designed in coordination with a distinguished board of advisors, which includes:

Robert X. Cringely . . . . . . . . . . . . . . . . . .I, Cringely Laurie Harting . . . . . . . . . . . . . . . . . . . . .Palgraves Econolog Paul Kedrosky . . . . . . . . . . . . . . . . . . . . .Infectious Greed Lynne Kiesling . . . . . . . . . . . . . . . . . . . . .Knowledge Problem Donald Marron . . . . . . . . . . . . . . . . . . .DMarron.com Mark Perry . . . . . . . . . . . . . . . . . . . . . . .Carpe Diem Wade Roush . . . . . . . . . . . . . . . . . . . . . .Xconomy.com Allison Schrager . . . . . . . . . . . . . . . . . . .Free Exchange Nick Schulz . . . . . . . . . . . . . . . . . . . . . . .Enterprise Blog Yves Smith . . . . . . . . . . . . . . . . . . . . . . .Naked Capitalism Alex Tabarrok . . . . . . . . . . . . . . . . . . . . .Marginal Revolution Mark Thoma . . . . . . . . . . . . . . . . . . . . . .Economists View

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Kauffman Economic Outlook2011 Q3

The Kauffman Foundation is dedicated to the idea that entrepreneurship and innovation drive economic growth. Naturally, this technology of blogging is a fascinating one, both for its effect on the economic research frontier, but also as an innovation in its own right. A survey of so many high-prole participants offers a unique opportunity for discussion, and this survey should be viewed as one way of summarizing some of the insights of the community of economics bloggers.

KEY FINDINGS
THE ECONOMY
Economics bloggers seem even more pessimistic in their outlook on the U.S. economy than they have been so far in 2011, with 95 percent who believe overall conditions are mixed, facing recession, or in recession. For an economy in which growth is the norm, 44 percent of respondents think that the U.S. economy is worse than ofcial statistics indicate, and only 7 percent believe it is better. When asked to describe the economy using ve adjectives, uncertain remains the most frequently used term.

POLICY RECOMMENDATIONS
Although the panel is largely nonpartisan, an almost two-thirds majority of top economics bloggers believes the government is too involved in the economy. The top policy recommendations (selected from a small set of choices) remain for the government to reduce regulatory burdens and fees on new rm formation, and approve trade agreements with South Korea, Colombia, and Panama with more than 88 percent support. A new policy oated this quarter is a requirement for the Congressional Budget Ofce (CBO) to account long-term liabilities in its budget assessment, favored by 88 percent of respondents. More than half of the participants support an extension of the debt limit without conditions, and just thirty-six favor an amendment to the Constitution that would constrain federal expenditures. However, two key budgetary policies were favored by 57 percent of the panel: (1) capping tax credits and deductions per household, and (2) converting Medicare to a premium support program. The results seem to conrm the nonpartisan makeup of the respondent pool.

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Kauffman Economic Outlook2011 Q3

SURVEY RESULTS
The Kauffman Economic Outlook includes core questions that will recur each quarter and one-time-only topical questions. Core questions focus on two areas, and are presented in the following charts and tables: the performance of the U.S. economy and policy assessments and recommendations. Finally, there are topical questions provided by economics bloggers themselves, which are not categorized.

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U.S. E C ONO MI C P E R F O R MA N C E
How do you assess the overall condition of the U.S. economy right now?
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
0% 5% 7% 33% 55%

No respondents (0 percent) believe the economy is strong and growing, as overall opinion has shifted slightly and seems to be declining since last quarter. Three respondents (5 percent) believe the economy is strong with uncertain growth. Fifty-ve percent (thirtytwo respondents) say conditions are mixed. There were nineteen respondents who believe the economy is facing recession (33 percent), with four respondents believing the economy is weak and recessing (7 percent).

Strong and growing

Strong with uncertain growth

Mixed

Facing recession

Weak and recessing

[Kauffman Economic Outlook2011 Q3]

How do you assess the overall condition of the U.S. economy right now? (open text response)

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U.S. E C ONO MI C P O L I C Y
Is the U.S. economy doing better or worse than official government statistics show?
50% 40% 30% 20% 10% 0% Better Same Worse
[Kauffman Economic Outlook2011 Q3]
49% 44%

7%

Skepticism about ofcial statistics remains the rule among economics bloggers. Skepticism is more intense than last quarter. However, weak employment data would seem to conrm that ofcial statistics are getting it right. Regardless, 7 percent of our panel thinks the U.S. economy is doing better than ofcial statistics indicate.

Is the U.S. federal government too involved in the U.S. economy?


80% 70% 60% 50% 40% 30% 20% 10% 0% Yes Mixed / about right No
23% 16% 61%

A large majority (61 percent) of economics bloggers believe the U.S. government is too involved in the economy, almost four times more than those who hold the opposite view. This response is noteworthy given the balanced and largely nonpartisan identication of respondents.

[Kauffman Economic Outlook2011 Q3]

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Kauffman Economic Outlook2011 Q3 U.S. ECONOMIC POLICY

What are the prospects for the following over the next three years?
(In the U.S. unless stated otherwise)

Decreasing strongly Global output Top marginal tax rate Interest rates (real) Ination Employment Budget decit (annual) GDP per capita Poverty Stock market Corporate tax rate -40%

Decreasing

Increasing

Increasing strongly

Projecting three years ahead, economics bloggers expect global output to rise faster than anything else. A signicant difference from the previous reports is that only 50 percent of respondents anticipate employment growth in the United States, where previously 70 percent had anticipated growth. Opinion remains split about expectations of higher poverty and inequality levels, and expectations of higher annual decits and the top marginal tax rate are a depressing surprise.
-20% 0 20% 40% 60% 80%

[Kauffman Economic Outlook2011 Q3]

Decreasing Decreasing strongly Global output Top marginal tax rate Interest rates (real) Ination Employment Budget decit (annual) GDP per capita Poverty Stock market Corporate tax rate Corporate tax rate 2% 0% 0% 0% 0% 2% 0% 0% 3% 0% 0% 10% 2% 5% 2% 21% 26% 20% 9% 14% 19% 26%

About the same 17% 35% 33% 37% 29% 24% 32% 47% 43% 61% 54%

Increasing 59% 61% 54% 56% 47% 41% 46% 40% 34% 19% 19%

Increasing strongly 12% 2% 7% 5% 3% 7% 2% 4% 5% 0% 0%

[Kauffman Economic Outlook2011 Q3]

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Kauffman Economic Outlook2011 Q3 U.S. ECONOMIC POLICY

The U.S. federal government should... (select one or more)


Strongly Disagree Approve trade agreements with South Korea, Colombia, and Panama Require CBO to account long-term liabilities in annual budget assessments Reduce regulatory burdens and fees on new rm formation Convert Medicare to a personal premium support program Cap tax credits & deductions per household Extend the debt limit without conditions Adopt a Constitutional amendment requiring annual expenditures not exceed the real average revenues of the previous 7 years -100% -75% -50% -25% 0 25% 50% 75% 100% Disagree Agree Strongly Agree

When asked to evaluate a variety of policy proposals, the top recommendation was to approve trade agreements with South Korea, Colombia, and Panama, with 90 percent in agreement (60 percent agreeing strongly). Eighty-eight percent also favor approval of a reduction of regulatory burdens and fees on new rm formation. The panel also supported the adoption of extending the debt limit without conditions (55 percent).

[Kauffman Economic Outlook2011 Q3]

Strongly Disagree

Disagree

Agree

Strongly Agree

Approve trade agreements with South Korea, Colombia, and Panama Require CBO to account long-term liabilities in annual budget assessments Reduce regulatory burdens and fees on new rm formation Convert Medicare to a personal premium support program Cap tax credits & deductions per household Extend the debt limit without conditions Adopt a Constitutional amendment requiring annual expenditures not exceed the real average revenues of the previous 7 years

3% 5% 5% 19% 7% 17% 36%

7% 7% 7% 24% 36% 28% 28%

29% 48% 33% 34% 38% 29% 22%

60% 40% 55% 22% 19% 26% 14%

[Kauffman Economic Outlook2011 Q3]

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Kauffman Economic Outlook2011 Q3 U.S. ECONOMIC POLICY

What is your sense of the conditions that exist for the following:
Very Good Good Fair Bad Very Bad

60% 50% 40% 30% 20% 10% 0% Entrepreneurs

In every category of business, conditions right now are rated as fair, bad, or very bad by more than 69 percent of respondents, with venture and angel capital being the least bad of them all at only 69 percent, while bank lending to individuals is rated 90 percent negative.

Venture & Angel capital

Bank lending to businesses

Bank lending to individuals

[Kauffman Economic Outlook2011 Q3]

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Kauffman Economic Outlook2011 Q3

OTHE R TOPI C A L Q U ES T IO N S FR OM PARTIC IPATING BLO GGERS


Nick Schulz (Enterprise Blog) asked and many bloggers answered: What is a realistic long-run growth rate for annual real per capita GDP in the United States?

0%: a steady state of zero growth 1%: decelerate from low-hanging fruit era 2%: modern average trend 3%: acceleration 4%+: singularity V%: highly variable between 1-3% X%: this cannot be predicted
0

2% 18% 44% 14% 4% 14% 5%

10%

20%

30%

40%

50%

Looking beyond the macroeconomys cyclical uctuations, almost half of respondents (44 percent) expect U.S. growth to return to the steady 2 percent annual rate, with roughly equal numbers expecting 1 percent slower (18 percent) and faster (14 percent). If one includes the 14 percent of respondents who anticipate a variable growth rate in the 13 percent range, its safe to say there is a consensus expectation for the longrun trends to essentially continue. Two respondents expect growth to accelerate, an idea popularized as approaching a singularity in science ction, while one respondent anticipates complete stagnation.

[Kauffman Economic Outlook2011 Q3]

Ryan Avent (Free Exchange) asked: Over the next decade, what share of the U.S. fiscal consolidation should be accomplished through revenue increase?

0% 25% 50% 75% 100%


0% 5%

23%

50%

21%

For many years, conventional wisdom held that scal balance would and should be achieved through an even mix of tax increases and spending cuts. However, economics bloggers strongly favor a mix that favors spending cuts. Indeed, more favor consolidation to focus entirely on spending cuts (23 percent of respondents) than those who favor a fty-fty mix (21 percent).

10%

20%

30%

40%

50%

60%

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Kauffman Economic Outlook2011 Q3 OT H E R TO P I C A L Q U E S T I O N S F R O M PA RT I C I PAT I N G B L O G G E R S

Amol Agrawal (Mostly Economics) asked: Did fiscal policy expansion in 2009, particularly ARRA (the stimulus), mitigate or alleviate the impact of the crisis?

Much less than 1 Less than 1 Equal to 1 Greater than 1 Much greater than 1
2%

19%

28%

30%

21%

10%

20%

30%

40%

50%

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Assessment of the 2009 scal stimulus bill that was passed by a partisan majority of Democrats in the House and Senate and signed into law early in the Obama administration has proven controversial as the recovery was weaker than expected. However, defenders of stimulating aggregate demand argue that, absent the stimulus, the recession would have been worse or possibly tipped into an outright depression. Agrawals question frames the judgment on a technical description of the multiplier, which is the estimate of how much government spending trickles down into the economy. A multiplier equal to one means the spending added no boost to aggregate demand, but also did no harm, meaning it had a neutral effect. Seventy-seven percent of respondents believe the stimulus had a neutral or negative effect (a multiplier equal to or less than one), with most believing the multiplier was actually less than one (47 percent). Only 23 percent of respondents believe the multiplier was greater than one.

Chris Masse (Midas Oracle) asked: Have Robin Hanson, Justin Wolfers, and James Surowiecki been exaggerating the usefulness of the prediction markets?
Yes
36%

No

36%

Dont Know

28%

As an example, in early 2010 Robin Hanson wrote on his blog, Prediction markets arent about emphasizing ordinary Joes over credentialed big shots; they are about emphasizing whomever tends to be right. Simple opinion averages maybe be reasonable indicators of crowd wisdom, but they have too little of the forum-ness of letting self-selected expert teams come to dominate. The response to this question was perfectly balanced, with 36 percent answering yes and another 36 percent answering no. We would not have predicted that.
50%

10%

20%

30%

40%

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Kauffman Economic Outlook2011 Q3 OT H E R TO P I C A L Q U E S T I O N S F R O M PA RT I C I PAT I N G B L O G G E R S

Dean Baker (Beat the Press) asked: Should the U.S. unemployment insurance program be restructured with one or more of the following proposals? One idea is for the government to subsidize a short-time week as is done in Germany (paying a firm to retain workers by cutting hours 20 percent and wages nearly 10 percent for everyone). Another idea is to push back initial eligibility from the first day of unemployment so that benefits are paid only after day thirty but extended for a longer period. A final idea is to phase out benefits in order to curtail the end-of-benefits job search spike.
50% 40% 30% 20% 10% 0% Subsidize short-time Push back initial eligibility Phase out benets [Kauffman Economic Outlook2011 Q3] Yes No Dont Know

A plurality of 47 percent of respondents does not support a short-time subsidy, and just 33 percent do. Similarly, 33 percent favor (and 41 percent oppose) pushing back the initial eligibility date for unemployment insurance. The most popular reform, with support from 47 percent of respondents, is a phaseout of benets, with 31 percent opposed. In general, there was no consensus here, unfortunately.

Craig Newmark (Newmarks Door) asked: There is widespread speculation that the U.S. government will attempt to break up or attempt to regulate Google. What will happen? What should happen?
Will the FTC le suit against Google? Yes No
0 20% 40% 54%

46% 60% 80%

Should the government le suit? Yes No


0

(i.e. Is Google monopolizing or otherwise violating U.S. antitrust law?)


7%

Economics bloggers have a very cynical view of the FTC investigation of the Internet search rm, Google. 100% A majority (54 percent) believe the government actually will le suit against Google, yet 93 percent believe the suit lacks merit.

93% 20% 40% 60% 80% 100%

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Kauffman Economic Outlook2011 Q3 OT H E R TO P I C A L Q U E S T I O N S F R O M PA RT I C I PAT I N G B L O G G E R S

Menzie Chinn (EconBrowser) asked: Do you agree with the following statements about the advent of bloggers relative to the period when newspaper columnists dominated?
Strongly Disagree The speed of research diffusion has accelerated Disagree Agree Strongly Agree

The level of public discourse regarding economic theory and economic policy has improved

Bad ideas are debunked more efciently

All respondents but one agree or strongly agree that the speed of research diffusion has accelerated thanks to blogging. And 82 percent strongly agree (96 percent agree overall) that the level of public disclosure regarding economic theory and economic policy has improved. Large but less intense majorities also agree that blogging has helped debunk bad ideas more efciently and weakened the role of traditional infomediaries.

The role of infomediaries (media, think tanks) between policymakers and economic experts has weakened -25% 0 25% 50% 75% 100%

[Kauffman Economic Outlook2011 Q3]

Strongly Disagree

Disagree

Agree

Strongly Agree

The speed of research diffusion has accelerated The level of public discourse regarding economic theory and economic policy has improved Bad ideas are debunked more efciently The role of infomediaries (media, think tanks) between policymakers and economic experts has weakened

0% 0% 0% 0%

2% 4% 14% 21%

12% 14% 53% 45%

86% 82% 33% 34%

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Kauffman Economic Outlook2011 Q3 OT H E R TO P I C A L Q U E S T I O N S F R O M PA RT I C I PAT I N G B L O G G E R S

Mike Mish Shedlock and Claus Vistesen (Mishs Global Economic Analysis and Alpha.Sources) asked: What is the likelihood of the following occurring sometime before the end of 2012?
The Euro still exists through 2014 Obama is re-elected Greece abandons the Euro U.S. recession 99% of U.S. troops leave Iraq Collapse of U.S. Treasury prices U.S. unemployment rate dips below 7 percent U.S. Medicare is coverted to premium support
0 35% 29% 23% 21% 16% 20% 40% 60% 80% 100% 47% 56% 68%

Condence in the Euro is stunningly low, with 32 percent believing it will not exist in 2014. While this is a minority opinion, it is a serious signal of weakness. Opinion is split 4753 on whether Greece will abandon the Euro within the next eighteen months. Likewise, 23 percent believe there will be a collapse of the U.S. Treasury prices. While 56 percent believe Obama will be reelected, only 29 percent believe that 99 percent of U.S. troops will leave Iraq. A third of respondents predict a double-dip recession before the end of 2012.

[Kauffman Economic Outlook2011 Q3]

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METHODOLOGY & PANEL SELECTION


Invitations were sent to nearly 200 top economic bloggers, most of whom were on the Palgraves Econolog.net December 2010 rankings (its methodology is described at http://econolog.net/stats.php). Some blogs with multiple authors have more than one respondent in the panel. For example, both James Hamilton and Menzie Chinn, co-bloggers at EconBrowser.com, are participants, as are Tyler Cowen and Alex Tabarrok, co-bloggers at Marginalrevolution.com. The panel includes a total of fty-eight respondents. The panels from previous quarters are not directly comparable to this quarters panel. Roughly half of all bloggers participated in all quarters, so comparisons between the results have a large margin of error. The policy of the Kauffman Economic Outlook is that survey panelists and their blog names will be released, but all individual responses and comments will remain anonymous. A list of participants is included in the appendix. Panelists were asked to describe their political afliation, with the intent being to show whether the panel has an ideological bias. We nd that, among those who answered this question, 41 percent consider themselves Independent/Other, with 12 percent Democrat and 7 percent Republican. The last question asked economics bloggers to described their occupations and backgrounds. These responses were not exclusive (meaning respondents could select one or more). Nearly half are university professors, about one-fourth are former or current entrepreneurs, one-fth are investors, and nearly half have a PhD in economics.

Please describe yourself (check all that currently apply)


University professor/lecturer Entrepreneur (current or former) Investor Professional journalist Economics PhD JD MBA Registered Democrat Registered Republican Independent/Other 0% 10% 20% 30%
7% 41% 7% 5% 12% 14% 12% 43% 22% 47%

40%

50%

60%

[Kauffman Economic Outlook2011 Q3]

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APPENDIX
LIST OF RESPONDENTS
Individual responses will not be released, but names and/or blogs of the participants in the Kauffman Economic Outlook include: Amol Agrawal, Mostly Economics Pedro Albuquerque, Incentives Matter Ryan Avent, Free Exchange Dean Baker, Beat the Press Joshua Barro, PublicSectorInc.com David Beckworth, Macro and Other Market Musings Taggert Brooks, A Random Walk Bryan Caplan, EconLog Menzie Chinn, EconBrowser Bill Conerly, Businomics Jeff Cornwall, The Entrepreneurial Mind Robert Cringely, I, Cringely Atanu Dey, Atanu Dey Arthur Diamond, artdiamondblog.com Craig Eyermann, Political Calculations Eric Falken, Falkenblog Will Franklin, WILLisms Daniel Gross, Yahoo! Finance GYSC, Economic Disconnect James Hamilton, EconBrowser Robin Hanson, Overcoming Bias Ken Houghton, Angry Bear Tim Iacono, The Mess That Greenspan Made Tim Kane, Growthology.org Stephen Karlson, Cold Spring Shops Paul Kedrosky, Infectious Greed Arnold Klingf, EconLog Drea Knufken, Business Pundit Richard Langlois, Organizations and Markets Robert Lawson, Division of Labour Robert Litan, Growthology.org

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APPENDIX
LIST OF RESPONDENTS (continued)
Steve Malanga, Real Clear Markets Michael Mandel, Mandel on Innovation and Growth Geoffrey Manne, Truth on the Market Donald Marron, dmarron.com Chris F. Masse, MidasOracle.org Jeff Miller, A Dash of Insight Michael Munger, Kids Prefer Cheese Craig Newmark, Newmarks Door Matt Nolan, The Visible Hand in Economics Michael Panzner, Financial Armageddon Mark Perry, Carpe Diem James Picerno, The Capital Spectator E.J. Reedy, Data Maven at Kauffman.org Wade Roush, Xconomy Felix Salmon, Felix Salmon Andrew Samwick, Capital Gains and Games Frederic Sautet, Coordination Problem Allison Schrager, Free Exchange Nick Schulz, Enterprise Blog Mike Shedlock, Mishs Global Economic Trend Analysis Amity Shlaes, The Forgotten Man, CFR Gordon Smith, The Conglomerate Daniel Sokol, Antitrust and Competition Policy Blog Alex Tabarrok, Marginal Revolution Mark Thoma, Economists View Claus Vistesen, Alpha.Sources Steve Waldman, Interuidity Robert Waldmann, Angry Bear David Weman, A Fistful of Euros John Whitehead, Environmental Economics Glen Whitman, Agoraphilia David Zetland, Aguanomics.com

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